2025 (1) TMI 1400 - AT - Income Tax

Limited Scrutiny Assessment - Converting of a limited scrutiny case to an unlimited scrutiny case - Whether AO exceeded jurisdiction by converting a limited scrutiny case into a complete scrutiny case without obtaining necessary approval from the competent authority? HELD THAT - As regards first reason given selecting the case for scrutiny that the assessee had reported high income in the return but not submitted information in the Schedule pertaining to the Assets and Liabilities in the course of assessee admits that due to high income reported in the return the assessee was required to submit assets and liabilities schedule but the assessee did not submit the same. It is not being disputed on behalf of the assessee that such information of assets and liabilities is required to be furnished where total income of the assessee exceeds of Rs. 50 00, 000/-. Such information requires detailed enquiry. In view of this first reason the AO was competent to scrutinize the case not by way of limited scrutiny but as a complete scrutiny case. Second reason given in selecting the case for scrutiny it was found that the assessee had lent huge sum by way of loans as per Form 3CD of debtors in comparison to the gross total income shown in ITR. Accordingly when genuineness of loan transactions and sources of loan was to be verified it cannot be said that the case was selected for limited scrutiny. Third reason in selecting the case for scrutiny is concerned as per tax audit report substantial amount of loans was squared up by the assessee during the year under consideration. Accordingly genuineness of the transactions sources of unsecured loan identity as well as creditworthiness of the lenders were to be verified. It was also required to be verified whether the loan amounts had been actually and genuinely returned to any such creditors and also that the provisions of Section 269SS were followed while returning the said amount. CIT(A) NFAC fell in error in observing that the AO had passed the assessment order without following procedure i.e. without seeking approval of the competent authority as per CBDT Circular dated 28.11.2018 which contains directions for converting of a limited scrutiny case to an unlimited scrutiny case. Having regard to the reasons recorded for selecting the case for scrutiny it cannot be said to be a case selected for limited scrutiny or that the AO had expanded his jurisdiction. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment were:

• Whether the Assessing Officer (AO) exceeded jurisdiction by converting a limited scrutiny case into a complete scrutiny case without obtaining necessary approval from the competent authority.
• Whether the appeal filed by the department was barred by limitation and if the delay in filing the appeal should be condoned.
• Whether the assessment order was valid given the procedural irregularities alleged by the assessee.

ISSUE-WISE DETAILED ANALYSIS

1. Jurisdiction of the Assessing Officer

• Relevant Legal Framework and Precedents: The case was initially selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS) due to high income reported without corresponding entries in the Schedule of Assets and Liabilities, substantial loans given, and large squared-up loans. The CBDT Circular dated 28.11.2018 requires specific approval for converting limited scrutiny cases to complete scrutiny.
• Court's Interpretation and Reasoning: The Tribunal found that the case was not marked as "limited scrutiny" when selected under CASS. The reasons for scrutiny involved detailed verification of substantial financial transactions, which justified complete scrutiny.
• Key Evidence and Findings: The Tribunal noted from the assessment proceedings sheet that the case was not flagged for limited scrutiny. The reasons for scrutiny required detailed examination of the assessee's financial dealings, supporting the AO's jurisdiction for a complete scrutiny.
• Application of Law to Facts: The Tribunal applied the CBDT guidelines and found that the AO was within his rights to conduct a complete scrutiny without additional approval due to the nature of the issues flagged.
• Treatment of Competing Arguments: The department argued that the case was always intended for complete scrutiny, while the assessee contended that the AO exceeded jurisdiction. The Tribunal sided with the department, finding no procedural violation.
• Conclusions: The Tribunal concluded that the AO did not exceed his jurisdiction, and the assessment order was validly issued under complete scrutiny.

2. Condonation of Delay in Filing Appeal

• Relevant Legal Framework and Precedents: The department filed an appeal four days late, citing technical and operational delays. Condonation of delay is typically granted if sufficient cause is shown.
• Court's Interpretation and Reasoning: The Tribunal accepted the reasons for delay, including technical glitches and operational challenges during a holiday period, as sufficient cause for condonation.
• Key Evidence and Findings: The Tribunal considered the department's explanation regarding technical issues and staff unavailability during the festivity period.
• Application of Law to Facts: The Tribunal applied the principle of sufficient cause and found the department's reasons justifiable for condoning the delay.
• Treatment of Competing Arguments: The assessee did not oppose the condonation request, which supported the Tribunal's decision to condone the delay.
• Conclusions: The delay in filing the appeal was condoned, allowing the department's appeal to proceed.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reinforced the principle that the nature and scope of scrutiny are determined by the issues flagged during the selection process. Detailed financial scrutiny can warrant complete scrutiny without additional approvals if justified by the issues.
• Final Determinations on Each Issue: The Tribunal allowed the department's appeal, set aside the CIT(A)'s order, and remanded the matter for fresh consideration on merits, excluding the technical ground of jurisdiction. The assessee's cross-objection was dismissed as the delay in the department's appeal was condoned.
• Verbatim Quotes of Crucial Legal Reasoning: "Having regard to the reasons recorded for selecting the case for scrutiny, it cannot be said to be a case selected for 'limited scrutiny' or that the Assessing Officer had expanded his jurisdiction."

The Tribunal's decision underscores the importance of adhering to procedural guidelines while also allowing for practical flexibility in handling complex financial scrutiny cases. The remand to CIT(A) ensures that the substantive merits of the case will be reconsidered, providing the assessee an opportunity for a fair hearing.